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by Charles Carreon
February 7, 2006
“Everybody knows” that Charter
Communications is the “natural buyer” for “AFN,” even though nobody knows
precisely what portions of AFN would be for sale, if it were for sale,
which according to the City Council’s pronouncements, it isn’t. The
primary proponents of selling AFN (to Charter) are Gino Grimaldi,
Ashland’s outgoing Administrator, and Lee Tuneberg, the City’s top
accountant. Their reasoning is – they’ve borrowed all the money the banks
will lend, and then borrowed more money from their friends the municipal
bond bankers, who charged the City a mere $250,000 to underwrite our $15.5
Million bond issue. They’ve played hide-the-budget-ball with three
generations of City Councils, and managed all this without ever hiring a
real head of AFN, and the whole game is simply played out. They can’t bear
the idea of giving up control over this financial behemoth, but they don’t
want to deal with it anymore. They spend all of their time explaining why
they did what they did, and they can’t get any other work done.
So Charter to the rescue, at any price.
Although Charter is not a financial behemoth, with the total value of all
its outstanding common stock under half a billion, it has one important
stockholder whose personal finances dwarf those of our tiny burg. The
largest holder of Charter stock is Microsoft co-founder Paul Allen, who
has acquired 29,165,526 shares. Allen’s interest in Charter is as current
as his rumored romance with former Countess von Bismarck Laura Harring. He
is a mighty chieftain of the business world who invests seven and
eight-figure sums in various companies through Vulcan Securities, a
private investment house dedicated entirely to investing Allen’s money.
Like all investment houses, Vulcan pays big salaries to MBAs and CPAs to
produce intensive financial reports on prospective investments. Since July
2004, Allen he has bought and sold millions of shares in private
transactions that value Charter stock at up to 30 times its market value.
A May 2004 Business Week articled entitled “The $12 Billion Education of
Paul Allen,” noted that Charter was one of a select group of technology
assets Allen retained in his portfolio after deciding to cut his losses on
a broad array of wired investments that had not panned out. The article
indicates that Allen takes a personal interest in Charter that is unique
among his investments:
Allen, who had long suffered from a sort of
investor's attention deficit disorder, has made a big effort to become
more focused. Never married, he says he is spending more time than ever on
his investments. He holds weekly meetings with his financial advisers;
before, he met with them only on an ad-hoc basis. Now he lunches with the
senior members of his investment team every Monday to get updates on deals
and discuss strategy. Allen holds another weekly meeting to catch up on
developments at Charter, his biggest holding after Microsoft. “I've been
through the fire in the last few years,” says Allen. “Now I get involved
and ask questions that are a lot more pointed and specific and probing —
and, I think, insightful.” … The devastation of the tech bust led Allen to
some serious soul-searching. Last fall, he distilled his thinking into a
26-point memo setting out ways to improve his investment management…”
Already, some outcomes are changing. One of Allen's bullet points is a
reminder to “negotiate hard” but walk away from overpriced deals. … Adds
Allen: “I wish we had the 26-point memo five years ago. Things would be in
a different place today. Those lessons were learned at a significant
cost.”
This snapshot of Paul Allen’s thinking
shows that Charter’s main shareholder has been badly burned in the tech
meltdown, and if we think Charter is going to buy AFN, we had better plan
on giving it away – after burning through twelve of his thirty-billion
dollar Microsoft haul, this billionaire has turned into a skinflint. As
the article discusses, in a recent non-deal, Allen invested in Magis
Technologies, an HDTV technology R&D startup, watched it slide into
bankruptcy, joined other vulture investors making lowball offers, and was
outbid by Sanyo for a lousy $3.5 Million. Fundamentally, companies are
Paul Allen’s toys, and he is getting bored. He smashes them up, throws
them away, and generally treats them like disposable entertainment.
As a result, you would never want Charter
to buy anything large from you, because it’s losing money faster than the
Titanic was shipping water when the rich people were stealing the
lifeboats, and I bet Paul Allen has already commandeered one with oars,
biscuits and fresh water. The statistics on Charter are so bad that it is
clear that, but for Allen’s support, the company would be defunct.
Although it has over $5 Billion in annual revenue, it has a negative
profit margin of -18.7 %, negative net income of -$974 Million, and a
negative book value of -$14.35 per share.
Allen’s not much a civic giver, either, if
you were wondering. Turning his knack for screwing up businesses to the
field of professional sports, he bought the Portland Trail Blazers. Under
Allen’s mismanagement, a string of players started getting more time under
the police photolamps than the gym lights, and the team earned a new name
– the Jail Blazers. The Jimi Hendrix museum he paid Frank Gehry to design
looks like a piece of stainless steel attempting to morph into an enormous
amoeba, another abandoned toy, and his plans to renovate neighborhoods
never produced any concrete fruit. Given Allen’s history for turning his
back on bad investments, if Charter acquired AFN, that would cast us, the
owners of AFN, from the frying pan of having to manage our own ISP into
the fire of being owned by a collapsing gas giant that will strip our
asset, jack up our prices, and give us service like you’ve never imagined.
Marti Mandelbratt
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